ADP Miss - Does It Matter?
The US Dollar is trading on the back foot today following the ADP employment miss yesterday. The indicator, which is often used as a proxy for gauging the more important NFP release, came in at just 374k, well below estimates of 625k. With this in mind, traders have been revising lower their expectations for tomorrow’s data. It is worth remember, however, that the correlation between the ADP release and the NFP release is not exactly a sure bet. While the two reports are sometimes, correlated, other times they are wildly un-correlated. If you’re interested in reading more, here’s a great article to check out.
That being said, what’s important here is the market’s perception and reaction and big misses on the ADP report tend to see USD lower into the NFP. Now, obviously, this presents a decent buying opportunity for those who still believe that tomorrow’s number will come in strong, and looking through the bank notes ahead of release, there are plenty of them! Additionally, with the market forecasting a decline from the prior month, it seems the better opportunities are likely to be found to the upside e.g buying USD against other currencies in response to any upside surprise in the data.
Manufacturing Up, Employment Down
Looking elsewhere, yesterday’s manufacturing data is also worth taking into consideration. The indicator came in at 59.9 from the prior month’s 59.5, and above the expected 58.5. On the face of it, while not ground-breaking at all, this is a positive reading. However, the key for tomorrow’s data is the employment component of this release. Sadly for USD bulls, the employment index eased back to 49 in August from the prior month’s 52.9. Once again, this doesn’t look great for tomorrow’s data. However, it is worth remembering that the factory sector is the far smaller sector of the US economy and services employment is the real key to gauging broader labour market conditions. Because of the earlier release this month, however, we won’t see that reading until after the NFP.
Upside USD Opportunities Into NFP
The takeaway here is that with a negative USD tone going into tomorrow’s data, it would likely take a much bigger downside surprise to send USD meaningfully lower. On the other hand, if we see a positive surprise tomorrow, this could catch the market off-guard, sending USD higher as a result.
Technical Views
USDJPY
The contracting triangle pattern in USDJPY still holds plenty of upside risk, given the bullish trend which preceded the structure. A break higher in USD tomorrow would likely see the pattern break, putting focus on 110.92 and 111.70 next, supported by bullish indicators. To the downside, if we break lower, 109.42 and 108.71 are the key levels to watch initially.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.